The first sale with a client is usually the hardest to get. It takes time to build the trust necessary in your prospect. They need to decide if your company will best meet their needs, is it everything it claims to be, is the price equal to the value and are you a person that has their best interest at heart? Since the first sale is the hardest to get, you want to make sure you keep them as customers once they have purchased your product or service.
It only takes a small shift in the way your employees view customers to have a major impact on customer retention. If your employees have the right mindset whenever they interact with customers you will position yourself to be a leader in your market and keep sales in your pipeline.
So what is this small shift in mindset that can have such an impact on your company? It’s understanding the potential lifetime value of a customer. Instead of your employees treating someone like a $100 customer, what if they knew the lifetime value of a satisfied customer was $100,000? Do you think that would have an impact on how your employees treat current and prospective customers? Or on how you would train your employees to interact with these customers? This small adjustment can have a major impact on your company.
A prime example of the $100 customer being worth a $100,000 in gross revenue is a grocery store. It is easy these days for a family with children to spend $100 per week on groceries. If you can get them to make all their purchases from you during the year, they would spend $5,200. If you can keep them coming back to you for the next 20 years that consumer would generate $104,000 in gross revenue. Some companies look at lifetime value in total gross revenue generated by a customer.
Most companies calculate lifetime value as follows: LTV = revenue X contribution margin X repurchase rate X life cycle. These numbers are calculated with the average statistics from your business. What is the average sale amount? What is your contribution margin? What percentage of your customers purchase from you again? What is the average length of time people continue to repurchase from you? The answer to this equation is your benchmark. When using this method, it is also important to put your numbers up against those of the averages in your industry. Most industries have groups that can provide you with those numbers. I also think it’s important to plug in the industry numbers for total purchases during a lifetime and not just the averages for your company or industry. It helps to see how much a consumer will actually spend during a lifetime on a specific product or service. This would give you a best case scenario to present to your staff if you were able to keep a customer for life. This will provide your staff with a mindset to provide a world class purchase experience.
No matter what industry you are in, you can develop a process to engage customers in a way to increase customer retention. Think about the car industry. According to this CNBC article Americans Buying Fewer Cars in Lifetime. The average number of new cars bought in a lifetime is 9.4. And according to Forbes the Average Price of a New Car is $30,303. Using these numbers the average consumer is now worth $284,848 in gross revenue. Car dealers should focus on securing as many of the 9.4 cars per consumer as possible. Here is an example of what they could do. The salesperson can send out a thank you letter after a purchase. Call in a few weeks to check satisfaction. Send out cards at the holidays and every anniversary of the purchase. If they send out a predetermined series of cards, emails and surveys about the car they purchased, that dealership and salesperson stays top of mind. So when it’s time for that consumer to start looking for a new car, this dealer has a great chance of being the first choice since they stayed engaged with the consumer. This engagement campaign will also help build a solid referral business from these satisfied customers.
So the next time a customer calls your company on the phone or walks through your establishments doors, you want to have your employees thinking about the lifetime value of that person if they buy your product or service. Your employees need to be thinking, how can I make this the best possible purchase experience? This mindset will have a significant impact on your business.
Please let me know your thoughts or if you look at lifetime value in a different manner.
David Domos developed WhyBuyFromYou.com to provide content to help small businesses develop their branding, marketing and sales systems. In the past he held key leadership positions for a fortune 500 company. That company led the market in both sales and brand awareness and David was a significant contributor to its growth. David has been on the Amazon.com best seller list in their Direct Marketing, Communications and Entrepreneurship categories. He is a student of sales, marketing, branding & small business growth, continually focusing on the reasons people buy. Follow him on Twitter @WhyBuyFromYou or visit www.whybuyfromyou.com.